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By Verne Kopytoff
May 19, 2014

FORTUNE — AT&T has agreed to buy DirectTV for $49 billion in a blockbuster deal that will create a pay-television colossus.

The acquisition, announced on Sunday, is just the latest in a quickly consolidating telecommunications industry. Companies are jockeying for supremacy in the slow-growing but lucrative television market as a way to fund projects in more promising businesses.

But the consolidation also raises questions about a dwindling number of pay-television options. Limited competition could lead to customers paying higher television bills, according to consumer groups.

Earlier this year, Comcast agreed to buy Time Warner Cable for $45 billion in what was the previous title-holder for biggest acquisition offer this year. That marriage is still facing regulatory review.

By buying satellite television service DirectTV (DTV), AT&T (T) would instantly shift from a minor player in pay-television to major force. The combined company would have 26 million subscribers, second only to Comcast, which would have 30 million if it successfully completes its deal for Time Warner Cable.

AT&T is hoping to make pay-television another pillar in its sprawling business, which already includes telephone, mobile and broadband service. The company has been pushing hard in television for several years with its U-verse service, but with 5.7 million customers, it is still dwarfed in size by a number of cable television competitors.

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With DirectTV as part of the family, AT&T would be able to negotiate better licensing deals with television programmers. It would also get an instant lift to its international business with the addition of 18 million DirectTV subscribers in Latin America. Growing prosperity in Latin America could fuel far faster growth than is possible in the mature U.S. market. AT&T emphasize that potential in a statement in which Randall Stephenson, the company’s chief executive, spoke about all the ways his company will be able to better reach customers – in the U.S. and elsewhere – through a DirectTV acquisition.

“This is a unique opportunity that will redefine the video entertainment industry and create a company able to offer new bundles and deliver content to consumers across multiple screens – mobile devices, TVs, laptops, cars and even airplanes,” he said. “DirectTV is the best option for us because they have the premier brand in pay TV, the best content relationships, and a fast-growing Latin American business.”

Getting regulatory approval for the DirectTV acquisition will be complicated, but not necessarily as difficult for AT&T as some of its previous efforts to buy other companies. In 2011, AT&T withdrew a $39 billion acquisition bid for wireless company T-Mobile USA after the Justice Department sued to block the deal. But in television, AT&T is an upstart while Comcast is seen as a behemoth that must be countered. In a sign that it is fully aware of the regulatory risks, AT&T’s offer includes no break-up fee if the deal doesn’t go through, according to sources familiar with the matter.

In addition to the financial benefits, AT&T tried to cast the deal as a benefit to rural consumers who are currently have no access to AT&T’s broadband service. Along with television, DirectTV sells satellite broadband connections, although the service can be a bit slow.

Additionally, AT&T tried to make the deal more palatable by promising to honor net neutrality, the idea that all Internet traffic be transmitted at the same speed, for three years. net neutrality is currently a hot topic after the Federal Communications Commission opened debate on whether to let Internet providers to create a fast lane for online content providers that can afford to pay for it.

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